Very often business owners, especially small business owners, tend to opt for unsecured business lines of credit when they need to borrow money for their business. Although the bank might extend unsecured business lines of credit to you, it is imperative that you understand the danger of taking it.
First of all, you will get an unsecured business line of credit only if you have been in business for minimum of one year. In addition, you need to have personal FICO credit score of more than 680 along with a revolving credit of 70 percent or more. Only if you fit these criteria, will the bank extend an unsecured business line of credit to you.
Most businesses that opt for this option have a cash flow problem. This means that more cash is going out than coming in. However, if the situation continues even after getting the unsecured business line of credit, the next problem that you will have will be repaying the bank. The interest rate on this type of credit is high because you receive the finance without the use of collateral. If you do not pay the credit amount, the interest will keep mounting. Ultimately you might have to file for bankruptcy in order to repay the business line of credit.
Although most new businesses will run into cash flow problem at some time or the other, you have to ensure that you will be able to generate money at some point to clear your debts. In addition, if you do not clear your debt, it will bring down your business credit scores and you will have a tough time rebuilding should you need more financial help in the future.
Therefore, before opting for unsecured business lines of credit, think through carefully and make a wise decision.